Uber Unties the Purse Strings to Expand in China

Uber is spending its way into China, chiefly by paying its drivers there even more than the fares they pocket, according to The New York Times.

The paper reported Monday (June 8) that the ride-sharing company is using its deep pockets – and that’s about $6 billion in deep pockets, the total amount raised from venture capital firms – to levy fat bonuses at up to triple the amounts of fares Chinese drivers collect.

And, says The Times, the strategy is grabbing the attention of hordes of new drivers, as Uber says it has created more than 60,000 jobs in the country in just the past month, helping cement Uber’s growth in China and “shattering prevailing assumptions that young American tech companies cannot compete against local rivals.”

The Uber push in China comes as the company attempts to scale beyond the more than 300 cities and 58 countries it currently serves, while bumping up against key rival Didi Kuaidi, the largest ride-sharing service with roughly 90 percent of the market. Didi Kuaidi also has the financial power of Alibaba and Tencent behind it.

Still, two unnamed sources told The Times, Uber manages to provide more than 100,000 rides in the country daily and charge fares that are cheaper than traditional taxis by 35 percent or more.

Upscale Chinese, reports The Times, embrace Uber on some extras such as free water and on the relative courtesy shown by drivers themselves.

The strength in demand for the relatively new service would seem to validate Uber’s strategy in China, which took shape two years ago. In late 2013 the company began tests in two southern Chinese cities, with a slight shift in strategy than had been seen with other Western companies setting up shop in China. Uber focused on hiring locals as managers – and now counts its operations across nine urban sites.

At the end of last year, after Uber sold a stake to Baidu, and the two companies began working together to leverage the latter’s map applications.

“Baidu is trying to promote its mobile payment system, Uber would help it gain more traffic and boost its location-based services,” Li Yujie, an analyst at RHB Research Institute Sdn in Hong Kong, told Bloomberg at the time of the deal’s announcement.

But the Uber model, through a service called People’s Uber, which allows drivers to register with the company and then drive others around for paid trips, has raised a bit of friction in China. That business differs from that of rival Didi Kuaidi, said The Times, which lets people summon taxis or contract with private limo or luxury car services.

Local governments in two southern Chinese cities have been watchful about allegations of unlicensed drivers and have even conducted raids against Uber, actions that have in turn spurred protests from drivers. In the meantime, Didi Kuaidi launched its own private service fleet, complete with discounts and incentives for drivers to join.

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